Stupid Stock Market

A few months ago I bought my first stocks that weren’t part of a retirement plan or employee stock program. Since I am such a huge fan of the service, I bought some shares in XM Radio, which at that point had been on a slow slide and was under $30 with a target price of $39 over the next year. I figured I’d take a chance on it. I also figured that I’d throw a few dollars at Sirius radio as well, figuring that there might be a end-of-year/start-of-year bump thanks to the start of Howard Stern on Sirius.

Since then, I have watched these stocks do some of the weirdest stuff I’ve ever seen stocks do. Though they were my first owned stocks, I’ve watched various stocks over the years and it apparent a bunch of lunatics have invested in these companies along with me. Even with analysts saying "buy" or "hold" the stock continues to go down. XM has gone down about $8 a share since I bought it.

Yesterday XM Radio held their 4Q review call and while they continue to lose money and had a board member quit with a warning of a potential cash crisis, they came very close to the analysts projections and said that they would be cash flow positive by the end of the year. They missed their 2005 subscriber target by a matter of days, ending up with their projected 6 million by the first week of January ’06.

However, the key to the entire satellite radio industry is long-term potential. XM was the first to launch, broadcasting nationally in late 2001, with Sirius following a few months later. By the end of 2006, will have over 15 million subscribers, with predicitions of over 55 milllion subscribers by 2010. Right now the cost is $12.95 a month, but that’s certain to go up and other options added on (right now, I believe the only additional subscription available on either service is a $1.99 subscription for the Playboy channel on XM Radio).

I’m not going to get into a discussion of market capitilization and P/E ratios and all that techincal stuff that analysts like to dig into. Rather, I’m looking at what the long-term potential and viability is of these two companies, and I think it is remarkably good.

Just in the next year, XM radio will begin broadcasting a station from Oprah Winfrey and her collection of talk personalities, as well as new shows hosted by Bob Dylan and Dale Earnhart Jr. (no, not together, though wouldn’t that be a hoot?). They also have an exclusive partnership with Napster which allows them to integrate the techonologies and allow listeners to download the music they heard on the radio. They have the most innovative radio technologies out of the two and have the popularity of Major League Baseball, as they will enter their second year carrying every single game played, from spring training to the World Series.

That is a pretty impressive line-up, and Sirius has their own powerful crew: the obvious one is Howard Stern, who accounted for many of the new sign-ups for Sirius over the last few months. In addition, they have the NFL, the NBA, the NHL (though I’m not sure what’s going on with that, since XM has it too) and will soon have NASCAR. The ability to hear your team play anywhere in the country in crystal clear audio is a pretty attractive benefit to a lot of consumers.

ANYWAY – so what’s the point of all this? Investors are driving down the stock value of these companies based on short term losses and aggressive spending to gain subscribers. However, any companies with 9 and 6 million subscribers (XM and Sirius’ predictions for the end of ’05) paying $13 a month are pretty attractive companies. Let’s say that these companies act like a bunch of idiots, tryign to outspend each other and go bankrupt, but have these huge bases of subscribers? Do you not think that a Viacom or ClearChannel or Comcast is going to pick them up in an instant? Exclusive content deals, paid subscribers, unique technology, access to broadcasting satellites…. these companies are worth a lot to themselves and to other people.

I hope that investors realize the long-term outlook for both of these companies and help to boost the stock price of both companies, not only for my own selfish reasons, but also for the sake of this growing technology.